ABSTRACT China's bilateral currency swap lines have become a prominent instrument of financial diplomacy and an increasingly important component of the evolving international monetary system, yet their implications for international trade remain insufficiently understood. This paper examines the effects of China's swap line arrangements on bilateral goods and services trade over the period 2009–2023. Employing a structural gravity framework, panel local projections, and a newly assembled dataset on renminbi (RMB) swap agreements, we find that access to RMB liquidity increases bilateral trade, with the strongest and most robust effects concentrated in goods trade. By contrast, the impact on services trade is generally weak and statistically insignificant, reflecting the continued dominance of U.S. dollar invoicing and the lower dependence of services sectors on trade finance and liquidity support. The dynamic effects are economically meaningful but largely transitory, suggesting that swap lines primarily alleviate short‐term frictions rather than induce lasting changes in trade patterns. The evidence is consistent with two complementary mechanisms: a liquidity channel that relaxes financing constraints and reduces reliance on foreign‐currency funding, and a signaling channel that strengthens expectations of sustained bilateral economic cooperation. Overall, the results suggest that China's swap network functions not only as a financial safety net but also as a strategic instrument of economic diplomacy that supports trade integration and reinforces the international role of the RMB.
Research on corporate political strategy emphasizes firm-government engagement but largely treats governments as unitary and political alignment as stable. Drawing on stakeholder theory and the behavioral theory of the firm (BTOF), this study challenges these assumptions by examining how resource-constrained small private firms navigate factionalized political environments. Focusing on Chinese township and village enterprises (TVEs), we theorize that performance feedback shapes firms' political alignment choices between incumbent and nonincumbent factions. Using four empirical studies and extensive robustness checks, we find that firms experiencing below-aspiration performance are more likely to realign by supporting nonincumbent factions, whereas above-aspiration firms tend to maintain their political ties with incumbent factions. We further show that informal employment conditions these relationships. These findings advance stakeholder theory in incorporating intragovernmental competition, extend BTOF into the political domain, and illuminate how labor informality conditions political behavior. This study offers new insights into firm-state relations in emerging economies where political fragmentation and discretionary power blur the boundary between market competition and political engagement.
ABSTRACT Investment in state‐owned enterprises (SOEs) is often distorted by weak discipline and politically mediated governance. We study a staggered Chinese accountability reform that strengthens managers' ex‐post downside exposure via administrative enforcement and career consequences, rather than board‐ and contract‐based mechanisms. Using a multi‐period difference‐in‐differences design, we find higher SOE investment and improved investment efficiency without increased overinvestment, with effects concentrated among underinvesting SOEs. Mechanism evidence shows stronger discipline (involuntary turnover after underperformance), fewer firm and executive violations, weaker insider resource diversions, and improved internal controls. Overall, ex‐post accountability functions as a substitute governance mechanism primarily alleviating underinvestment frictions.
Geographic proximity between regulators and firms can significantly influence economic activities. The impact of regulatory proximity from environmental regulators on corporate green innovation remains unclear in existing literature. We address this gap by utilizing a sample of Chinese listed firms from 2007 to 2020. Our findings reveal that a closer geographical distance between firms and their corresponding Environmental Protection Administration positively affects corporate green innovation. Notably, this relationship is particularly pronounced among firms located in regions with more frequent environmental penalties, higher local government environmental protection expenditure, and greater intensity of public environmental petitions. Further analyses of the mechanisms indicate that our findings are driven by the resource acquisition effect, the enhanced environmental ethics effect, and the regulatory deterrence effect. Additionally, a series of endogeneity tests and robustness checks are employed to provide robust support for our hypotheses. This study underscores the pivotal role regulatory proximity plays in shaping firms' ethical conduct and innovative endeavors within the environmental sustainability landscape.
Ethnic-based political inequality is widespread, yet its underlying drivers remain poorly understood. This paper shows that an ethnic group's relative size is a key correlate of its access to central executive power. Using data on 575 groups across 181 countries from 1946 to 2021, and restricting attention to non-dominant groups, I document a robust inverted-U-shaped relationship: intermediate-sized groups receive greater access than both very small and very large groups. I interpret this pattern through a simple model in which incumbents trade off the conflict risk of exclusion against the rent cost of sharing power. The model further predicts that the inverted-U should be pronounced where political institutions have historically been competitive, and weaker and closer to monotone where institutions have been biased toward incumbents. The evidence is consistent with this prediction. Together, the findings highlight how ethnic composition and institutional history jointly shape access to state power.
Although green finance is expected to underpin enterprises' development of new quality productive forces (NQPF), its actual effects lack empirical evidence. Using 2011-2022 panel data, we construct green finance and enterprise NQPF indices that incorporate digital and green low-carbon permeable features. We find green finance significantly enhances NQPF, with stronger impacts on private, small, and tertiary-industry firms. Green technological innovation serves as the key mediator, effective only in regions with higher economic development and driven mainly by high-value green invention patents. We accordingly propose targeted policies to ease financing constraints and accelerate green transitions.
We construct a structural vector autoregressive (SVAR) model and a dynamic stochastic general equilibrium (DSGE) model with liquidity constraints in the real estate and household sectors to analyze China's property market downturn. We find that: First, although the slump originated from a real estate liquidity shock, falling housing demand poses a greater risk. Second, China's project completion assurance plan has limited impact, primarily benefiting firms with ample liquidity when the sector faces binding liquidity constraints. Third, both expansionary monetary policy and lower mortgage rates can effectively stimulate the macroeconomy. Fourth, direct central bank lending or guarantees for illiquid developers may better address systemic risks.
This study examines the impact of tax reduction incentives (TRIs) on the green transformation (GT) of Chinese A-share listed companies between 2008 and 2022. Our findings indicate that these incentives effectively encourage firms to adopt greener practices, a conclusion supported by robustness checks and endogeneity tests. The transformative effect is primarily driven by increased risk-taking, enhanced research and development (R&D) expenditure, and increased green investment (GI). Furthermore, the influence of TRIs is more pronounced in companies with high information transparency, those operating outside heavily polluting industries, and large-scale enterprises. The study also offers policy recommendations to bolster GT and the effective implementation of tax incentives in China, based on insights drawn from both theoretical and empirical analyses.
We examine whether and how mandatory non-financial disclosure affects corporate cash holdings. Using a panel data set of Chinese A-share listed firms from 2005 to 2012 and exploiting the introduction of mandatory corporate social responsibility (CSR) disclosure for a subset of firms as a quasi-natural experiment, we find that firms subject to the mandate significantly reduce their cash holdings relative to unaffected firms. We show that reductions in firm-specific (idiosyncratic) risk constitute the primary channel through which CSR disclosure affects cash policy, relative to alternative explanations related to systematic risk and corporate governance. Consistent with the precautionary motive of cash holdings, the effect is more pronounced among financially constrained firms. In addition, mandated firms exhibit improved access to external financing and a lower marginal value of cash. Overall, our findings suggest that mandatory CSR disclosure weakens the precautionary demand for cash by enhancing the firm's information environment, highlighting the important role of non-financial information transparency in shaping corporate financial policies.
Green innovation is pivotal for China's sustainable development. This study investigates the economic consequences of stock market mispricing-a prevalent feature of China's developing capital market-on corporate green innovation. Using a sample of Chinese A-share listed firms from 2007 to 2020, we find that stock market mispricing, particularly overvaluation, significantly promotes corporate green innovation. We further explore the underlying mechanisms and identify two primary channels. First, mispricing incentivizes managers to increase information opacity by reducing the readability of annual reports. Second, it leads to higher executive excess compensation, which helps align managerial incentives with long-term, high-risk innovation projects. Moreover, we document a chain mediation effect where increased information opacity leads to greater executive excess compensation, which in turn stimulates green innovation. This overall effect is more pronounced for firms with greater analyst coverage and a stronger corporate focus on green initiatives. This study contributes to the literature on the real effects of financial market frictions, demonstrating how stock market inefficiency can paradoxically foster corporate investment in green technology through complex agency and information channels. Our findings offer novel insights into the weak-form efficiency of China's capital market and provide salient policy implications for promoting sustainable corporate development.
Recent research establishes a positive causal effect from democracy to income, although this evidence relies mostly on binary regime classifications. We extend the identification framework of Acemoglu et al. (2019) to a classification that distinguishes democracies, autocracies, and hybrid regimes for about 170 countries over 1960-2024. We find hybrid regimes generate approximately 20 percent lower GDP per capita than either alternative, robust to a wide range of estimators, measures, and specifications. This effect is not a transition penalty, supporting the view that hybrid regimes are a durable institutional equilibrium with sustained economic costs rather than a simple transitional phase.
Considering the enactment of a pro-creditor bankruptcy reform in India as an exogenous policy shock, we investigate its impact on firms' tendency to avoid taxes. Employing the difference-in-differences (DiD) methodology, we find that post-bankruptcy reform, distressed firms significantly reduced their tax avoidance than non-distressed firms. Our channel analysis shows that increased borrowings, along with higher return on equity (RoE) and sales growth, help distressed firms reduce tax avoidance as opposed to non-distressed firms during the post-IBC period. The reduction in tax avoidance is due to improved credit culture after the said reform. Furthermore, our findings remain qualitatively similar under DiD with matching technique and the randomization inference test.
Public support for populism shows significant generational differences that contemporaneous economic or cultural factors cannot fully explain. Adopting a political socialization perspective and analyzing data from European countries, I find that exposure to higher inflation during people's early adulthood correlates with greater later-life support for populist parties, especially those campaigning on generous welfare policies. Mechanism analyses show that this connection is partly explained by lower political trust, suggesting changes in perceptions of political authority during the high inflation period. These findings highlight the importance of early inflation experiences to individuals' contemporary political preferences and attitudes toward populist movements.
From the perspective of moderating effects, this study examines the role of trust in insurance in the process of shaping households' decisions to purchase commercial health insurance (CHI). On the basis of panel data obtained from three waves of the China Household Finance Survey (CHFS), a logit model is employed to estimate the impact of health risk on CHI uptake, after which the moderating effect of trust in insurance on this relationship is analyzed. The results indicate that trust in life insurance significantly moderates the decision to purchase CHI, whereas trust in other insurance products, such as property insurance, has no significant effect in this context. This study clarifies the differentiated ways in which trust in insurance influences CHI purchasing decisions, thus contributing to the literature on the determinants and mechanisms that underlie such decisions. Furthermore, this study offers practical insights for efforts to mitigate adverse selection in the CHI market and enhancing public participation in commercial health insurance.
What is the relationship between authoritarian repression and democratization? I reexamine this question by analyzing the problem of an autocrat who intends to install a democracy but faces a highly diverse policy environment. Using a theoretical framework, I show that a strategic use of repression can often contribute to a democratic political transition. In other words, repression and democratization are not always substitutes. A transition to democracy can follow a series of repressions aimed at eliminating ideologically distant opposition. The paper identifies two factors that determine whether this mechanism dominates: the severity and the cost of repression. The model is illustrated by the episodes of democratic transitions in Sub-Saharan Africa.
This paper examines the role of political alignment in affecting regional growth and interstate inequality in India, the world's largest multiparty democratic country with three layers of fiscal federalism system. Using a state-level data set during the 1991-2022 period, we find that political alignment overall has a positive effect on states' growth. It also affects income inequality across states: a broader measure of political alignment (when both the Union and state are governed by the same party or its allies) has no impact on interstate income inequality. Whereas the narrow definition (when the heads of both the Union and state governments belong to the same political party, not just allies) demonstrates a divergence effect. The effects of political alignment on growth and interstate inequality weaken as institutional capability improves. The growth and inequality effects of political alignment vary considerably during different periods. During the period when an alliance was mandatory to form the government (1991-2013), politically aligned states experienced higher growth and generated a divergence effect. During the period of a single-party stable government (2014-2022), political alignment tended to have a negative growth effect and reduced interstate income inequality. The overall divergence effect is attributed to the faster growth of politically aligned states with higher income levels in the below-median income group.
This paper is aimed at quantitatively assessing changes in the quality of international trade statistics over the last 22 years and the impact of trade sanctions on the discrepancies between direct and mirror data. Using bilateral flows classified by 2-digit HS codes for all available nations, we find discrepancies declined until 2019, then surged amid recent global shocks. Panel analysis reveals sanctions' dual effect. Sanctioned countries show lower discrepancies, suggesting stricter customs enforcement reduces errors. Conversely, sanction-imposing nations exhibit higher discrepancies, indicating statistical opacity shifts to complex supply chains and re-export hubs used to circumvent restrictions.
While armed conflict remains a major impediment to economic and political stability in developing countries, the potential role of digital financial inclusion, particularly mobile money, in mitigating violent conflict remains largely unexplored. This article examines the impact of mobile money adoption on armed conflict across 103 developing countries from 2000 to 2020, using the Entropy Balancing method to address selection bias. The findings show that mobile money significantly reduces violent conflicts, with an average decrease of 282 conflict-related deaths. These results remain robust across various sensitivity checks, including alternative model specifications, instrumental variable techniques to account for the reverse causality, and analyses of dynamic and spillover effects. The study also highlights important heterogeneity in the impact depending on the type of mobile money service, the country's level of development, the duration of the conflict, financial sector development, and geographic region. Moreover, it identifies key economic channels, including income, unemployment, inequality, and consumption volatility, through which mobile money contributes to the reduction of violent conflict. These findings underscore the strategic importance of digital financial services for promoting peace and fostering economic development in low- and middle- income countries.
Political factors have an essential role to play in financial development. Populism is one of them that still has not captured sufficient attention in the existing body of literature. This paper aims to address this gap based on empirical data analysis from 59 countries worldwide over the years 1997-2021. Obtained results show that populist political leadership has had beneficial effects on financial institutions development, while being significantly detrimental for financial markets development. Additionally, increased level of development of the banking sector raised the possibility of electoral success of populist political movements, while the opposite was true for stock and debt securities markets. The proportion of female legislators in national parliaments and rule of law acted as stimulators of financial institutions development. The findings also show that central government debt, population and research and development expenditure constituted significant catalysts of financial markets development.
Geopolitical risk (GPR) has emerged as a major source of global economic uncertainty, yet its impact on key information intermediaries remains underexplored. This paper examines how GPR shapes analyst forecast bias. We exploit the 2018 US-China trade war as a quasi-natural experiment and construct a firm-level GPR exposure measure based on pre-shock profit sensitivities. We find that analysts significantly reduced their optimistic bias for firms with high GPR exposure in the post-trade war period. This correction, however, is consistent with a behavioral, non-rational learning path. Analysts showed initial over-pessimism during the conflict, and this was followed by significant over-compensation after the conflict de-escalated. Mechanism tests show analysts also use coverage termination as an "implicit sell" signal, rather than expressing pessimism directly through revised forecasts. Heterogeneity analyses show the effects are concentrated in non-SOEs and firms with deep, rather than broad, international exposure. Our study contributes to the literature on GPR and information intermediaries, offering key insights for regulators and investors navigating geopolitical uncertainty.
